Germany

United effort bucks the trend and cuts costs in Germany and beyond

GERMANY: Germany's strong industrial base has helped to stabilise it against the ravages of the EU sovereign debt crisis. So, while contraction of wind support in other member states can only reduce orders from abroad to German wind-turbine manufacturers, this is not true for Germany itself.

State of growth: New wind-power installations in Germany grew by 26% in the first half of 2012, with southern states starting to embrace wind (photo: Siemens)
Quite the contrary. The decision, following the Fukushima nuclear disaster in Japan in March 2011, to phase out nuclear power by 2022 and rely increasingly on renewable energies - a transformation known as the Energiewende - has inspired Germany's 16 federal states to forge ahead with expanding wind energy.

As a result and despite the euro crisis, the German wind sector is expanding. Around 2.4GW of mainly onshore wind was expected for 2012 after nearly 2.1GW in 2011 and 1.5GW in 2010. For 2013, a further small surge is expected as Germany's southern federal states press ahead with earmarking areas for wind developments.

Perhaps surprisingly, by continuing to expand its wind fleet Germany is effectively helping neighbouring countries' economies by reducing their power prices, albeit working hand-in-hand with photovoltaic (PV)generation, which has increased massively since 2010.

The fall in prices is considerable. In 2011, the average spot market price in non-peak use periods traded on the Franco-German spot market exchange Epex Spot stood at €0.051/kWh. But in the first nine months of 2012 it fell by almost €0.01 to €0.043/kWh, mainly due to more wind and solar coming on to the system during periods when power prices were formerly at their highest, such as in the midday hours.

Knock-on effect

This has a knock-on effect on prices paid to energy firms, with margins being reduced through improved power available - from PV as much as from wind, both of which had exceeded 30GW capacity by September 2012. For German consumers, who will pay a new renewable energy levy of EUR0.0527/kWh from 2013, they are effectively helping to reduce the average wholesale price of power not only in Germany, but also in neighbouring countries.

By increasing German wind energy on an electricity system that is more often linked with those in neighbouring countries, the economies of these countries potentially benefit from the reduction in generation from fossil fuels - reducing the national fuel bill when they rely on imported power-station fuels such as oil, coal and gas. As German Green Party energy expert Hans-Josef Fell pointed out in summer 2012, the 27 EU countries spend huge amounts on raw material imports, mainly oil, each year. At least some of this expenditure could be kept in the countries or within Europe, he argued, by finding ways to switch to wind and other renewables, which would help those economies.

Thanks to cross-border electricity trading on the wholesale power exchanges such as EEX, when the wind is blowing strongly in Germany,the wholesale price of power can fall not only in Germany but also in neighbouring countries. Power companies in countries where prices are reduced due to German wind power when the wind is blowing strongly are not particularly pleased, however, when this means their own generation - usually coal or gas fired - is pushed out of the market because it is more expensive.

Those power companies could in theory benefit by exporting power to Germany on other occasions when the wind is not blowing and the sun is not shining in Germany. But electricity export/import data from October 2011 shows that this happens only rarely. Germany still regularly shows a monthly export surplus even after the closure of eight nuclear power stations since October 2011 following the Fukushima nuclear disaster.

Whether they like it or not, national electricity sectors across Europe have little choice but to accommodate these imports, and the impact will become much stronger by the end of 2014, when the internal electricity market for the EU is to be completed.

Cross-border coupling

The heads of EU member states agreed in February 2011 that this internal electricity market should be completed by 2014 to allow electricity (and gas) to flow freely. While the lengthy process of improving and building a new cross-border transmission network goes on, so-called cross-border coupling between European regions to make the best possible use of existing interconnectors has taken on new importance.

Currently, sale of electricity generated in Germany during high wind periods at low prices into other countries is partially blocked by a bottleneck at borders. If these bottlenecks can be fully or partially removed by physically expanding their transmission capacity or by improving trading arrangements to allow fuller use of the existing capacity, the electricity can find a market in other countries where the prices are higher.

Theoretically, if cross-border trading were perfect, wholesale electricity prices in European countries would converge. So, if a few hours of high wind in Germany result in a large amount of power on the market, the wholesale price of power will fall during that period. If this price is lower than the expected power price in other countries, traders would bid to buy German power to supply those countries, up to the point where the cheap German surplus caused by high winds is eliminated. In this way, the lower power prices in Germany are shared across more European countries.

Where transmission capacity bottlenecks still occur despite market coupling, this sends a strong signal to governments to see that the bottleneck is reduced or eliminated by expansion of the cross-border capability.

Saving water

For wind-farm operators, the improvements in day-ahead market coupling to 2014 (see box, previous page) are likely to allow more electricity to be traded across borders. More surplus electricity from a high wind period in one region can be sold into other linked markets that are experiencing lower wind or have higher prices.

This could also help solve storage problems by using hydro electricity storage potential in Scandinavia, Austria and Switzerland to integrate surplus wind and other renewables generation and provide reserve generation for Germany as its Energiewende progresses.

German consultancy firm Prognos found that the most efficient storage form, with an efficiency of 90%, would be "indirect storage" in Scandinavia. This is defined as a set up in which surplus electricity - for example generated during high wind periods - from Germany is used directly by Scandinavian consumers, saving Scandinavian hydro water stores for use when electricity is called up for export to Germany.

If the market prices are balanced - price market coupling - this could take place as a direct consequence of market forces. The economically viable new-build potential to 2050 for interconnectors between Germany and Scandinavia amounts to 7-12GW, which could transmit 10-20TWh/year or 26-52% of German surplus electricity from renewables expected to arise by 2050, the Prognos study concluded. The effect of interconnections with Austria and Switzerland would be smaller because their hydro resources are smaller and would be in demand by Italy and other southern states.

SANS FRONTIERES PLANS FOR A EUROPE-WIDE ELECTRICITY MARKET BY 2014

Cross-border market coupling is designed to allow the best use of transmission capacity, for example by offsetting exchange of electricity deliveries in opposing directions.

It effectively enlarges the wholesale market from individual national markets to whole regions. These regions will, in turn, be coupled to create a Europe-wide market before the end of 2014.

So far, market coupling is for the day-ahead market.

The additional demands of intraday market coupling will be met at a later date, with the tender to find a supplier for the Europe-wide intraday system only having been issued in September 2012.

Trading data

Day-ahead market coupling is organised in overlapping regions and takes place on the basis of a complicated algorithm involving trading data from the energy exchanges and transmission capacity data from the transmission system operators.

There are five regions across Europe, covering north west, central western, central eastern, central southern and south west. A central west coupling went live in late 2010, with a more sophisticated version to follow in November 2013.

The north-west region will be coupled before the end of 2013, covering Germany, France, Belgium, the Netherlands, Luxembourg, Denmark, Sweden, Norway, Finland and the UK. It involves three power exchanges: ApxEndex (with Belpex), Epexspot and Nordpool spot, and encompasses 13 transmission system operators.

The central eastern market coupling will unite Germany, Poland, Austria, Czech Republic, Slovakia, Hungary and Slovenia, involving seven power exchanges and eight transmission system operators. As an initial step in September 2012, market coupling was launched between the Czech, Slovak and Hungarian market areas.

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